FEMA_Practicle Problems_12

Examine whether the following transactions are permissible or not under the above Act as Capital Account transactions :

i investment by person resident in India in Foreign Securities.
ii Foreign currency loans raised in India and abroad by a person resident in India.
iii Export, import and holding of currency/currency notes.
iv Trading in transferable development rights.
v Investment in a Nidhi Company.

i Investment by person resident in India in Foreign Securities is a capital account transaction. It is permitted within the limit, subject to the compliance of conditions and if declaration is made as per the provisions contained in the Regulations relevant to the transaction (viz., Foreign Exchange Management (Investment in Foreign Securities by a person resident in India) Regulations, 2000). However, drawal upto $ 2,00,000 is permitted without requiring any compliance with these Regulations, in accordance with the provisions contained in the Liberalised Remittance Scheme for Resident Individuals.

ii Foreign currency loans raised in India and abroad by a person resident in India is a capital account transaction. It is permitted within the limit, subject to the compliance of conditions and if declaration is made as per the provisions contained in the Regulations relevant to the transaction.

iii Export, import and holding of currency/currency notes is a capital account transaction. It is permitted 'within the limit, subject to the compliance of conditions and if declaration is made as per the provisions contained in the Regulations relevant to the transaction.

iv trading in transferable development rights is prohibited since no person resident outside India shall make investment in India in any entity which is engaged, or proposes to engage in trading in Transferable Development Rights (TDRs) (Regulation 4 of Foreign Exchange Management 'Permissible Capital Account Transactions Regulations, 2000).

v investment in a Nidhi Company is prohibited since no person resident outside India shall make investment in India in any entity which is engaged, or proposes to engage as Nidhi company (Regulation 4 of Foreign Exchange Management (Permissible Capital Account Transactions Regulations, 2000).

FEMA_Practicle Problems_11

Mr. Sekhar resided for a period of 150 days in India during the financial year 2003-2004 and thereafter went abroad. He came back to India on 1st April, 2004 as an employee of a business organisation. What would be his residential status during the financial year 2004-2005?

The residential status of an individual for a particular financial year is determined with reference to his residence in India in the immediately preceding financial year. In the problem given, Mr. Sekhar resided in India for less than 183 days in the financial year 2003-2004. Therefore, for the financial year 2004-05 he is a 'Person resident outside India' irrespective of the purpose or duration of his stay. Unless an individual resides in India for more than 182 days in the preceding financial year, he can in no case be termed as a person resident in India.

FEMA_Practicle Problems_10

Examine with reference to the provisions of the Foreign Exchange Management Act, 1999, the residential status of the branches mentioned below:

i NNM Ltd. an Indian Company having its registered office at Mumbai, India established a branch at New York U.S.A. on 1st April 2005.

ii DDI Ltd. a company incorporated and registered in London established a branch at Kanpur in India on 1st April 2005.

iii DDI Ltd. has a branch office at Singapore which is controlled by its Kanpur branch.

Section 2(u) defines a 'person'. As per this definition, the following shall be covered in the definition of a ‘person’:
a. A company
b. Any agency, office or branch owned by a 'person'.

Section 2(v) defines a 'person resident in India'. As per this definition, the following shall be covered in the definition of a 'person resident in India':
a. Any person or body corporate registered or incorporated in India.
b. An office, branch or agency in India owned or controlled by a person resident outside India.
c. An office, branch or agency outside India owned or controlled by a person resident in India.

The answer to the given problem is as under;
i

NNM Ltd. as well as the New York branch of NNM Ltd. is a 'person'. Therefore, residential status under FEMA shall be determined for each of them separately.

NNM Ltd. is incorporated in India. Therefore, it is a 'person resident in India'.

NNM Ltd. (a 'person resident in India') has established a branch outside India. Therefore, the New York branch of NNM Ltd. falls under the clause 'an office, branch or agency outside India owned or controlled by a person resident in India' and so the New York branch is a 'person resident in India'.

ii

DDI Ltd. as well as Kanpur branch of DDI Ltd. is a 'person'. Therefore, residential status under FEMA shall be determined for each of them separately.

DDI Ltd. (a foreign company) does not fall under any of the clauses of the definition of a 'person resident in India'. Therefore, DDI Ltd. is a person resident outside India.

The Kanpur branch of DDI Ltd. is a "person resident in India' since it falls under the clause 'an office, branch or agency in India owned or controlled by a person resident outside India'.

III

The Singapore branch of DDI Ltd., though not owned, is controlled by the Kanpur branch. The Singapore branch is a 'person resident in India' since it falls under the clause 'an office, branch or agency outside India owned or controlled by a person resident in India'.

FEMA_Practicla Problems_9

State whether the following statements are ‘True ‘ or ‘False’.

1. FEMA is a civil law.


2. A person resident in India can carry Indian currency notes of any denomination while traveling to Nepal.


3. ‘X’ who went to Switzerland in December, 2003 and drew US $ 10,000 desires to go to USA in January 2004, he can again draw US $ 10,000.


4. Foreign exchange payable for import of goods is a capital account transaction.


5. ‘X’, a citizen of USA but of Indian origin, comes to India for doing business and with the intention of setting in India, he becomes person resident in India on his arrival in India.


6. ‘A’ a citizen of India, goes to London to attend to his sick father and intends to stay in England till his father recovers, he becomes a non-resident from the date he leaves India.


7. ‘Security’ under FEMA includes a bill of exchange and promissory notes.


8. A person resident in India can purchase British lottery tickets through Internet using his International credit card.


9. A foreigner who is a non-whole time director of an Indian company can be paid ‘to’ and ‘fro’ fare for attending Board meetings in India.


10. An Indian sole proprietorship concern can accept deposits from non-residents on repatriation basis.


11. Export proceeds under FEMA must be realized within one month of shipment.


12. A non-resident can purchase immovable property in India only for his own residential use.


13. A person can buy foreign exchange up to US $ 1,00,000 for studies abroad per academic year.


14. A public limited company incorporated in India can accept deposits from non-residents only on non-repatriation basis.


15. A non-resident Indian who sells his immovable property in India can repatriate outside India only an amount equivalent to foreign exchange brought in.

FEMA_Practicla Problems_7

Mr. Z had resided in India during the financial year 1999-2000 for more than 182 days. He left India on August 1, 2000 for United States for pursuing higher studies for 3 years. What would be his residential status during financial year 2000-01 and during 2001-02 ?

FEMA_Practicla Problems_6

Mr. X had resided in India during the financial year 1999-2000 for less than 183 days. He had come to India on April 1,2000 for business. He intends to leave the business on April 30, 2001 and leave India on June 30,2001. What would be his residential status during the financial year 2000-01 and during the financial year 2001-02 up to the date of his departure ?

FEMA_Practical Problems_5

Mr.A had resided in India during the financial year 1999-2000 (1st April, 1999 to 31st March, 2000) for less than 183 days. He has come to India on April 1, 2000 for employment. What would be his residential status during the financial year 2000-01 (1-4-2000 to 31-3-2001) ?

FEMA_Practical problems_4

Mr. Patel, who was resident of USA for many years, now permanently returns to India. He continues to hold some immovable property, foreign security and other foreign exchange assets in USA. Can he hold such assets outside India?

Yes, section 6(4) of the Act gives general permissions to Residents to hold such immovable property, foreign security and foreign exchange outside India if they were acquired when he was Resident outside India. No special permission is required from the RBI but the current income on such assets say, rent, dividend or interest etc., shall have to be repatriated to India within the prescribed time limit as specified in regulation 5(i) of Notification No.9 viz: FEM (Realisation, Repretation & Surrender of Foreign Exchange), 2000.

FEMA_Practical problems_3

Can Mr. Pandya, a resident of Canada, instruct his brother staying in Mumbai to make a payment of Rs.5,000 to Mr. Joshi, his close friend?

No, as such payment is not permitted under clause (b) of section 3 of the Act.

Clause (c) prohibits every person for receiving any payment from or on behalf of a person resident outside India without an Inward remittance from a place outside India through an authorized person.

Clause (d) prohibits a person to enter into any financial transaction in India as consideration for acquisition, creation or transfer of a right to acquire any asset outside India by any person. The clause would affect a transaction in the nature of “Hawala Transaction”.

FEMA_Practical problems_2

Mr. Bharat, born and brought up in India, goes to USA on 10.4.2004 to look after his son, Amit, who is suffering from chronic disease, with the intention to stay over there till his son, Amit recovers completely. Determine his residential status under the Act for the financial year 2004-2005 and 2005-2006.

Mr. Bharat is going to USA neither for employment nor for business nor for any purposes which indicate his intention to stay there for an uncertain period. Thus, his physical presence in India during the preceding F.Y., i.e., 2003-2004 shall have to be considered and as he was in India for 365 days during the F.Y. 2003-2004 he would be treated Residential of India for the financial year 2003-2004.

If he continues to stay in USA, say, till 31-3-2005, his stay in India during the preceding financial year; i.e., 2004-2005 shall be less than 183 days and hence he would be treated Non-Residential for the financial year 2005-2006.

FEMA_Practical problems_1

Mr. Ashok, born and brought up in India, goes to USA for taking up an employment on 15.5.2004. Determine, his residential status under the Act for the F.Y. 2004-2005.

Mr. Ashok shall be treated as Resident of India till 14-5-2004. But, w.e.f. 15-5-2004, he shall be treated Non-Resident as he is covered by one of the exceptions listed in sub-clause (A) to section 2(v).